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VANCOUVER (Reuters) - A rolling postal strike, followed by deep service cuts, has highlighted the fading role of Canada's mail service in the age of the Internet, with neither side likely to end up ahead.
On one side of the dispute are postal workers who are looking for higher wages and more job security -- saying the company is ignoring their ideas to modernize as consumers increasingly pay bills online and use e-mail for letters.
On the other is Canada Post, which, in addition to seeing declining demand, faces what the company says is a yawning C$3.2 billion deficit in its pension system, at a time when more than a third of its workers are within 10 years of retirement.
"The pie they are trying to cut up is already shrinking," said George Smith, who teaches at Queen's University and is a veteran of labor negotiations in the railway and broadcast industries.
Smith said the limited action so far indicates the sides know they will both get hurt if the postal service shuts down entirely and the public does not care.
The unionized postal workers started their industrial action last week, staging 24-hour rotating strikes in different parts of the country to press their demands.
The independent, government-owned corporation responded by idling workers and reducing urban delivery to three days a week. It says mail volumes are down 50 percent since the strike began and the workers' demands will doom the company.
Canada Post, which traces its roots to the country's founding, reported a C$319 million profit last year on revenue of C$6.1 billion.
But, like postal systems around the world, it has suffered as letter writers turn to e-mail and customers pay bills electronically, and use courier firms like FedEx Corp for parcels and urgent deliveries.
Letter volumes were down 4.2 percent last year and the average number of letters delivered to each address is off 17 percent from 2005, according to the company.
Canada Post says its latest offer would increase the top wage for current workers to C$26 an hour and keep its defined benefit pension system. But it wants a lower pay scale for new hires and other contract changes.
The Canadian Union of Postal Workers, which represents the 48,000 urban postal workers, says it understands the difficulties facing Canada Post but it accuses management of not listening to fresh ideas such as offering banking services.
The union says the company is demanding other unfair concessions in areas including wages, staffing and safety.
The company says negotiations have stalled.
There has been surprisingly little public outcry at the reduced deliveries, although the dispute is pinching companies and government agencies that use the postal system for direct mail advertising and billing.
"While Canada Post volumes are dropping, the postal service still delivers 11 billion pieces of mail each year and remains relevant to the Canadian economy," the Canadian Marketing Association said in a release on Thursday.
The West Coast province of British Columbia faces an extra problem if the dispute escalates -- it is scheduled to hold a mail-in vote later this month on whether to repeal a controversial sales tax deal with the federal government.
John McCallum, a University of Manitoba finance professor, said the two sides need to reach a compromise that will sustain Canada Post for the long term, but he admitted that is very difficult given how quickly its competition is evolving.
"The problem with the future is that it doesn't come with a manual," McCallum said.
The federal government has urged the sides to keep talking, but has not said if it plans to intervene and legislate an end the dispute.
Reporting Allan Dowd; editing by Janet Guttsman and Rob Wilson